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Sen. Mark Warner, D-Va., has spent months trying to fashion a bipartisan plan to slash the federal debt through a combination of spending cuts and tax increases.
In a June 27 interview with The Wall Street Journal, Warner seemed confident that the two parties would reach an expedient budget deal that will increase the national debt limit before an Aug. 2 deadline when the U.S. faces possible default on it loans.
But Warner questioned the will of Congress and business to repair long-term structural problems in the federal budget that have caused debt to soar. "I get discouraged when I hear some of my friends say we need to ease the tax burden on business," he said, stating that corporate income taxes make up a much smaller percentage of total U.S. revenue than they did a generation ago.
"If you look at our tax mix, the share of corporate revenues as a percentage of our overall revenue mix has declined by about half over the last 30 years," Warner said.
We reported in Junethat the U.S. tax rate on corporate profits, at 35 percent, is the highest among industrialized democracies. The effective corporate tax rate, a calculation of the average rate businesses actually pay after deductions, is 27.6 percent and ranks fourth highest among international economies.
Warner’s comments raised a new question on the topic: Did the corporate contribution to U.S. revenues really shrink by 50 percent?
Kevin Hall, Warner’s spokesman, said the senator compared Congressional Budget Office figures from 2009 to those in 1979. In 2009, corporate payments made up 6.6 percent of total government revenue, down from 14.2 percent in 1979. So that is a reduction of more than half the earlier share.
Both years were times of economic gloom. The earlier year saw an oil crisis and gasoline shortages in the wake of the Iranian revolution. In July, President Jimmy Carter called on the nation to reduce oil imports and energy use during his "crisis of confidence" speech.
And in 2009, the recession-wracked nation was combating its worst economy in 75 years. The Dow Jones Industrial average bottom out at 6,626 points, about 47 percent beneath its current level. The unemployment rate hit 10.1 percent in October.
By choosing 2009 as a year of comparison, Warner is cherrypicking his statistics. Businesses struggled that year, and the 6.6 percent share of federal revenues paid by corporations was the lowest mark in 26 years.
Had Warner used 2010 as the end date of a 30-year comparison, he would have come up with less sensational numbers. In 1980, when the top corporate rate was 46 percent, income from those payments made up 12.5 percent of all revenue, compared with 8.9 percent in 2010.
In fiscal 2011, which ends in September 30, corporate payments are expected to make up 9.1 percent of revenue, compared with 10.2 percent in 1981.
What about the three fiscal years before 2009? How did corporate taxes compare to the figure from 30 years earlier?
*2008: 12.1 percent, compared with 15.0 percent in 1978
*2007: 14.4 percent, compared with 15.4 percent in 1977.
*2006: 14.7 percent, compared with 13.1 percent in 1976.
So in the three years before 2009, the share of corporate tax revenue was barely changed from the levels of 30 years ago. The gap in 2010 shrunk substantially from the gap in 2009, and this year’s gap is projected to be even smaller.
But if you go further back, from 2001 through 2003 the corporate revenue was half of that 30 years before. In 2004, payments were about 33 percent lower then 1974, and in 2005 the decrease was about 13 percent.
In the decade stretching from 2001 through 2010, corporate taxes averaged 10.3 percent of total federal revenue. During the stretch from 1971 to 1980, those taxes averaged 14.2 percent of revenue. So the decline from 30 years ago is really more like one-fourth, not the one-half cited by Warner.
Mark Warner says corporate taxes, as a share of total government revenue, have fallen by half in 30 years. He has focused on 2009, which creates the biggest gap, but Warner’s statement holds true for three other years in the last decade compared with 30 years earlier.
But for the majority of years in the last decade, Warner’s statement does not hold up. The decline over the last 30 years -- comparing averages from the 1970s to those of the last decade -- is 27.7 percent.
Warner is right about the overall trend of corporate taxes providing a smaller share of government funding. But by focusing on 2009, he exaggerates the decline.
We rate his statement Half True.
The Wall Street Journal, Come Together. Maybe, June 27, 2011.
Office of Management and Budget, Historical tables, Table 2.1: Receipts by source, accessed June 30, 2011.
Bureau of Labor Statistics, Unemployment rate 2001-2011, accessed July 1, 2011.
PolitiFact Virginia, George Allen says U.S. corporate tax rate is second-highest in world, June 18, 2011.
Tax Policy Center and Internal Revenue Service, Marginal rates of the federal corporation income tax, 1942-2009, April 12, 2010.
Interview with Kevin Hall, spokesman for Sen. Mark Warner, July 1, 2011.
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